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European stocks slump; hawkish Fed minutes increase growth concerns

Published 07/06/2023, 02:16 AM
Updated 07/06/2023, 03:45 AM
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Investing.com - European stock markets fell sharply Thursday, with risk sentiment hit by the release of hawkish minutes of the Federal Reserve’s June meeting as well as weak economic signals.

At 03:20 ET (07:20 GMT), the DAX index in Germany traded 0.8% lower, the CAC 40 in France fell 1.4%, while the FTSE 100 in the U.K. traded 1% lower.

Hawkish Fed minutes weigh

European stocks followed the negative lead on Wall Street, and Asia, after the minutes from the last Fed meeting showed that nearly all of its members supported more rate hikes in the coming months.

"Almost all participants noted that in their economic projections that they judged that additional increases in the target federal funds rate during 2023 would be appropriate," the Fed minutes showed.

Additionally, there were some policymakers who were in favor of a rate hike at the June meeting, when the U.S. central bank paused its year-long tightening cycle, amid concerns about the strength in the labor market and "unacceptably high" elevated inflation. 

Concerns that prolonged rate hikes will push the U.S. economy into recession have weighed heavily on most developed stock markets given the importance of the largest economy in the world as a global growth driver.

European economic concerns mounting

Back in Europe, economic worries are already growing after data released Wednesday showed that eurozone business activity slipped into contractionary territory last month.

The final Composite Purchasing Managers' Index, widely seen as a good gauge of overall economic health, slumped to 49.9 in June from May's 52.8.

There was some good news Thursday, as German factory orders rose 6.4% on the month in May, much better than expected and also an improvement on the fall of 0.4% the prior month, but this will only add to the likelihood of the European Central Bank continuing its tightening cycle even further past the July meeting.

Yellen visits China

Elsewhere, investors will also likely monitor the visit of U.S. Treasury Secretary Janet Yellen to China given the threat of a worsening trade conflict between the two countries after China imposed curbs on the export of key chipmaking materials to the U.S. earlier this week.

Airbus increases deliveries in first half

In corporate news, Airbus (EPA:AIR) stock fell 1% despite Reuters reporting that the European aircraft maker increased deliveries by 6% in the first half of the year to reach 316 aircraft. Airbus is targeting 720 deliveries for the year, and this would suggest it is slightly behind target, although the company declined to comment ahead of the publication of data on Friday.

Staying in the sector, Norwegian Air Shuttle (OL:NAS) stock rose 1.5% after the carrier agreed to buy domestic peer Wideroe, seeing the potential for substantial annual synergies.

Oil drops on U.S. activity fears

Oil prices edged lower Thursday as concerns about additional interest rate hikes curbing economic activity in the U.S., the largest consumer of crude in the world, overshadowed shrinking U.S. stockpiles.

Data released Wednesday by the industry group American Petroleum Institute showed that U.S. oil inventories shrank nearly 4.4 million barrels in the week to June 30, far more than expectations for a draw of 1.8 million barrels.

Official numbers from the Energy Information Administration are due later in the session, but a series of reductions in stocks have boosted hopes that U.S. oil demand is increasing during the travel-heavy summer season. 

By 03:40 ET, the Brent contract dropped 0.4% to $76.36, while U.S. crude futures traded 0.2% lower at $71.66 a barrel.

Additionally, gold futures fell 0.1% to $1,925.75/oz, while EUR/USD traded 0.1% higher at 1.0863.

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